Internet-based fundraising set to revolutionize mineral exploration financing
Last updated 1/10/2016 at Noon
There's been an awakening. Have you felt it?
"Crowdfunding" is emerging as a revolutionary new force in the way mining and mineral exploration companies will raise the cash needed to discover and develop the next generation of mines.
"I am not aware of any mining activity in Alaska that has been financed by crowdfunding, although I suspect that methodology will be utilized in the near future," observed Fairbanks-based geologist Curt Freeman. "Unfortunately, its alter-ego, what I call 'crowdselling,' is alive and well, being a common financial strategy practiced by almost every shareholder in the industry over the past five years."
This "crowdselling" by the traditional lot of institutional investors has sent the share price of mining companies to 21st Century lows and has left many mineral exploration companies on the precipice of insolvency if they cannot find an alternative financial solution.
Oscar Jofre, president and CEO of KoreConX, a Toronto-based firm that provides capital and communication solutions, says crowdfunding is the answer.
"Equity crowdfunding is a viable solution to this problem, and the industry can't afford to turn its nose up at it," he explained.
The online-marketing and capital-raising visionary believes that crowdfunding is not only a viable alternative to equity financing but also that the platform will revolutionize the entire mining and mineral exploration sector.
"Large $10 million deals are not going to be done the same way they were done three or four years ago - you need to adapt and this new adaption is actually better," Jofre told Mining News during a Jan. 5 interview. "Mining companies will be better, stronger; and exploration will benefit the most because it is so high-risk, it is very cash-intensive, and it is so volatile."
Oxford Dictionaries defines crowdfunding as "the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet."
This emerging platform for raising capital takes advantage of the ability to reach an enormous number of potential investors through vast networks of friends, family, colleagues and other like-minded individuals connected on social media websites like Facebook, Twitter and LinkedIn.
"Social media is what made crowdfunding what it is today; it allowed us to deliver a message and go viral," Jofre explained.
This expands the pool of potential investors beyond the typical banks, fellow mining companies and venture capitalists that currently rule the market.
Now, utilizing secure cloud-computing platforms provided by equity crowdfunding portals, mining and mineral exploration companies can market their shares to the billions of non-accredited investors that log onto the Internet each day.
"In a nutshell, equity crowdfunding is a new method of seeking financing that allows companies of all sizes (including startups) to raise funds through secured online platforms, giving them access to large numbers of qualified investors," KoreConX summarizes in an ebook for mining companies interested in equity crowdfunding.
This large group includes the next generation of investors, millennials, which have grown up with the internet and are coming of age in a time that crowdfunding is a growing force in the way money is raised.
"They like it because at their fingertips they can do their homework, at their fingertips they can do their investment, and they know it is at no cost to them," Jofre said of millennials and crowdfund investors.
Successful crowdfunding will require most mining and mineral exploration companies to make a major shift in marketing strategy.
Traditionally, the investor relations arm of a mining company is tasked with putting together a marketing plan targeting a relatively small pool of potential investors that are equipped with geologists, analysts, engineers and other experts needed to evaluate the plan.
Crowdfunding, by its very nature, however, requires a marketing plan to be tailored to entice a much larger audience, most of which would not be impressed by a Bingham Canyon-sized porphyry deposit or Kuroko-style volcanogenic massive sulfide deposit.
"Stop talking to your potential investors as though they're geologists or knowledgeable about the mining sector," Jofre advised.
In addition to the exposure provided by crowdfunding portals, this outreach should include providing company and project information at social media sites such as Facebook and LinkedIn.
"Mining companies need to learn how to speak to a new generation of investors, or die out," according to Jofre.
The crowdfunding advocate said that his outreach to millennials has shown that this emerging group of investors, also known as Generation Y, is surprisingly appreciative of the industry that supplies the materials that make their connected world possible.
"They actually understand the importance of mining for their daily lives," he said.
But an effective social media marketing campaign to reach these and the millions of other potential investors on the internet will require an unprecedented amount of transparency, or as Jofre likes to call it, "getting naked."
Press releases telling investors how many grams per ton gold or how well a company's stock price is doing is not what captures the imagination of Internet users. Instead, information that impacts people, regions and the world is what goes viral.
The KoreConX CEO said that posting photos and blogs about your day-to-day activities is not going to violate securities regulations, but it will connect the investors with the everyday activities of the companies they have a vested interest in.
This direct communication with shareholders will foster a pride of ownership for the individuals following the companies in which they are invested, creating a community of advocates.
"These people become the ambassadors for your company," Jofre explained.
Exchange commissions onboard
Getting naked will require a level of transparency beyond the comfort level of most mining companies that have been conditioned over the past two decades to adhere to the strict conditions of the security exchange commissions in the United States, Canada and around the globe.
"What you need is a strategy that is the opposite of what you're doing, and believe me it doesn't mean you will be offside with your regulatory compliance," Jofre explained.
He contends that filing restrictions are not unique to mining companies, yet other publically traded companies are constantly reaching the masses with marketing campaigns.
"Imagine if Microsoft, Apple, Google and Netflix couldn't speak to their audience. They're publicly traded companies, and each day they converse with their audience via multiple channels. So the argument that 'we are public' doesn't work," he said.
The Jumpstart Our Business Startups Act, or JOBS Act, signed into law by President Barack Obama in 2012, has helped pave the way for companies listed in the United States to raise capital through equity crowdfunding.
In October 2015, the U.S. Securities and Exchange Commission adopted rules to permit companies to offer and sell securities via crowdfunding portals.
"There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need," said SEC Chairwoman Mary Jo White.
Jofre told Mining News that that the adoption of these rules puts the United States on par with its northern neighbor.
"Canada has had that all along," he said.
The crowdfunding advocate said that over the past month nearly C$20 million has been raised in crowdfunding transactions in Canada ranging from C$300,000 to C$7.4 million.
The rules adopted by the SEC will allow individuals to invest in securities-based crowdfunding transactions subject to limits on how much a company can raise via crowdfunding, as well as on limits to how much an individual can invest. The new rules also create a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions.
The forms enabling crowdfunding portals to register with the commission will be effective on Jan. 29.
Currently, there are no crowdfunding portals specifically tailored for the mining and mineral exploration companies hoping to connect with the some 1.8 billion people using social media today - a figure that is expected to climb to 2.5 billion, or roughly one-third of Earth's population by 2018. This, however, is about to change.
Klondike Strike, a mining investment platform in which Jofre had a hand in creating, will be coming online in Canada later this month.
"Klondike Strike will be going live in Canada and then expanding to the United States, Australia, South Africa, U.K. (United Kingdom) and Hong Kong," the KoreConX CEO explained.
Chad Williams, a mining engineer and analyst that served as president and CEO of Victoria Gold Corp. for nearly four years, is to serve as the president and CEO of Klondike Strike.
While Klondike Strike is tailor made for mining, there are dozens of other equity crowdfunding sites a mineral exploration company could utilize.
Whether a mining or mineral exploration company uses Klondike Strike or some other portal, a significant amount of information will be required for the portal to carry out its due diligence on the company hoping to raise funds. This appraisal is to protect the reputation of the portal and the crowd coming in on the investment side, as well as ensure the investment site is meeting securities regulations.
"A company must pass the rigorous due diligence that the portal must do because the portal, in the back end of it, is operated by a brokered dealer," explained Jofre.
The equity raising visionary said that most mining companies will run across questions during the registration process at crowdfunding portals that have not been asked by traditional brokers.
"They need it because they are protecting the crowd," he explained.
In addition to providing a bridge between mining companies and a large pool of potential investors, Klondike Strike promises to provide extensive legal, marketing, social media and other tools for the exploratory companies that are adventurous enough to pioneer in this new world of finance.
Mining and mineral exploration companies that plan to wait for the uptrend in the cycle to return and raise capital through traditional channels are apt to find that the awakening of equity crowdfunding in the sector is a force that is changing the financial landscape.
"This is part of a bigger issue that is rippling around the world, which is, the banks are being disrupted by crowdfunding because of peer-to-peer lending," Jofre said.
"The change has come for those who are ready to be fully transparent," he added.